CAIRO, Nov 30 (Reuters) - An Islamist-led assembly was
expected to finalise a new constitution on Friday aimed at
transforming Egypt and paving the way for an end to a crisis
which erupted when President Mohamed Mursi gave himself sweeping
new powers last week.

Mursi said his decree halting court challenges to his
decisions, which provoked protests and violence from Egyptians
fearing a new dictator was emerging less than two years after
they ousted Hosni Mubarak, was "for an exceptional stage".

"It will end as soon as the people vote on a constitution,"
he told state television on Thursday night. "There is no place
for dictatorship."

The assembly was expected to finish approving the draft
constitution on Friday, allowing a referendum to be held as soon
as mid-December on a text the Islamists say reflects Egypt's new
freedoms.

Mursi's critics argue it is an attempt to rush through a
draft they say has been hijacked by the Muslim Brotherhood,
which backed Mursi for president in June elections, and its
allies.

Two people have been killed and hundreds injured in the
protests since last Thursday's decree, which deepened the divide
between the newly-empowered Islamists and their opponents.

Setting the stage for more tension, the Muslim Brotherhood
and its Islamist allies have called for pro-Mursi rallies on
Saturday. But officials from the Brotherhood's party changed the
venue and said they would avoid Tahrir Square, where a sit-in by
the president's opponents entered an eighth day on Friday.

Seeking to calm protesters, Mursi said he welcomed
opposition but it should not divide Egyptians and there was no
place for violence. "I am very happy that Egypt has real
political opposition," he said.

He stressed the need to attract investors and tourists to
Egypt, where the crisis threatens to derail some early signs of
an economic recovery after two years of turmoil. Egypt's
benchmark stock index fell on Thursday to a four-month
low.

"MAY GOD BLESS US"

An alliance of Egyptian opposition groups pledged to keep up
protests and said broader civil disobedience was possible to
fight what it described as an attempt to "kidnap Egypt from its
people".

Eleven Egyptian newspapers plan not to publish on Tuesday in
protest at Mursi's decree, one reported. Al-Masry Al-Youm also
said three privately owned satellite channels would not
broadcast on Wednesday in protest.

The plebiscite is a gamble based on the Islamists' belief
that they can mobilise voters again after winning all elections
held since Mubarak was overthrown in February 2011.

"May God bless us on this day," Hossam el-Gheriyani, the
speaker of the constituent assembly, told members at the start
of the session to vote on each of the 234 articles in the draft,
which will go to Mursi for approval and then to the plebiscite.

The legitimacy of the constitutional assembly has been
called into question by a series of court cases demanding its
dissolution. Its standing has also suffered from the withdrawal
of members including church representatives of the Christian
minority and liberals.

The Brotherhood argues that approval of the constitution in
a referendum would bury all arguments about both the legality of
the assembly and the text it has written in the last six months.

Mursi is expected to approve the adopted draft at the
weekend. He must then call the referendum within 15 days. If
Egyptians approve the constitution, legislative powers will pass
straight from Mursi to the upper house of parliament, in line
with an article in the new constitution, assembly members said.

The draft injects new Islamic references into Egypt's system
of government but keeps in place an article defining "the
principles of sharia" as the main source of legislation - the
same phrase found in the previous constitution.

HISTORIC CHANGES

Among other historic changes to Egypt's system of
government, it caps the amount of time a president can serve at
two terms, or eight years. Mubarak ruled for three decades. It
also introduces a measure of civilian oversight - not nearly
enough for the critics - over the military establishment.

The president can declare war with parliament's approval,
but only after consulting a national defence council with a
heavy military and security membership, effectively giving the
army a say. That element was not in the old constitution, used
when Egypt was ruled by ex-military men.

Activists highlighted other flaws such as worrying articles
pertaining to the rights of women and freedom of speech.

"There are some good pro-freedoms articles, but there are
also catastrophic articles like one that prevents insults. This
could be used against journalists criticising the president or
state officials," said human rights activist Gamal Eid.

"We wanted Egyptians to get more freedoms and less
presidential powers and were unhappy with the end result in
those areas," said Edward Ghaleb, who had been sitting on the
assembly as a representative of the Coptic Orthodox church.

New parliamentary elections cannot happen until the
constitution is passed. Egypt has been without an elected
legislature since the Islamist-dominated lower house was
dissolved in June.

"The secular forces and the church and the judges are not
happy with the constitution; the journalists are not happy, so I
think this will increase tensions in the country," said Mustapha
Kamal Al-Sayyid, a professor of political science at Cairo
University. "I don't know how the referendum can be organised if
the judges are upset," he added.

Egyptian elections are overseen by the judiciary.

The decree issued by Mursi worsened already tetchy relations
with judges, many of whom saw it as a threat to their
independence. Two courts declared a strike on Wednesday.
(Additional reporting by Tom Perry, Tamim Elyan, Patrick Werr,
Edmund Blair and Ali Abdelatti; Editing by Philippa Fletcher)